Tuesday, December 16, 2014

Economics Is A Fraud - The Reality of Labor

Of all the omissions in the conventional Neoclassical/heterodox economics, surely none is more egregious that that of the role of labor. Economics like to talk about voluntary exchanges and liberty and other such nonsense, but everybody knows that freedom in this economy is a relative term. Any acknowledgement of the obvious elephant in the room is termed "Marxist." Here are some good explanations in plain English:

The institutions and habits that contemporary industrial civilization uses to structure its economic life comprise that tangled realm of supposedly voluntary exchanges we call “the market.” Back when the United States was still contending with the Soviet Union for global hegemony, that almost always got rephrased as “the free market;” the adjective still gets some use among ideologues, but by and large it’s dropped out of use elsewhere. This is a good thing, at least from the perspective of honest speaking, because the “free” market is of course nothing of the kind. It’s unfree in at least two crucial senses: first, in that it’s compulsory; second, in that it’s expensive.

“The law in its majestic equality,” Anatole France once noted drolly, “forbids rich and poor alike to urinate in public, sleep under bridges, or beg for bread.” In much the same sense, no one is actually forced to participate in the market economy in the modern industrial world. Those who want to abstain are perfectly free to go looking for some other way to keep themselves fed, clothed, housed, and supplied with the other necessities of life, and the fact that every option outside of the market has been hedged around with impenetrable legal prohibitions if it hasn’t simply been annihilated by legal fiat or brute force is just one of those minor details that make life so interesting.

Historically speaking, there are a vast number of ways to handle exchanges of goods and services between people. In modern industrial societies, on the other hand, outside of the occasional vestige of an older tradition here and there, there’s only one. Exchanging some form of labor for money, on whatever terms an employer chooses to offer, and then exchanging money for goods and services, on whatever terms the seller chooses to offer, is the only game in town. There’s nothing free about either exchange, other than the aforesaid freedom to starve in the gutter. The further up you go in the social hierarchy, to be sure, the less burdensome the conditions on the exchanges generally turn out to be—here as elsewhere, privilege has its advantages—but unless you happen to have inherited wealth or can find some other way to parasitize the market economy without having to sell your own labor, you’re going to participate if you like to eat.

Your participation in the market, furthermore, doesn’t come cheap. Every exchange you make, whether it’s selling your labor or buying goods and services with the proceeds, takes place within a system that has been subjected to the process of intermediation discussed in last week’s post. Thus, in most cases, you can’t simply sell your labor directly to individuals who want to buy it or its products; instead, you are expected to sell your labor to an employer, who then sells it or its product to others, gives you part of the proceeds, and pockets the rest. Plenty of other people are lined up for their share of the value of your labor: bankers, landlords, government officials, and the list goes on. When you go to exchange money for goods and services, the same principle applies; how much of the value of your labor you get to keep for your own purposes varies from case to case, but it’s always less than the whole sum, and sometimes a great deal less.

Karl Marx performed a valuable service to political economy by pointing out these facts and giving them the stress they deserve, in the teeth of savage opposition from the cheerleaders of the status quo who, then as now, dominated economic thought.

So, what do I mean by capitalism? Capitalism is a system in which all major economic actors are dependent on the market for their basic requirements of life. Other societies have had markets, often on a large scale; but only in capitalism is market dependence the fundamental condition of life for everyone. And that is equally true of capitalists and workers.

The relation between capital and labor is itself mediated by the market. Wage laborers have to sell their labor power to a capitalist simply in order to gain access to the means of their own life and even the means of their own labor; and the capitalist depends on the market for access to labor and to realize the profits the workers produce. Of course there’s a huge imbalance of class power between capital and labor, but capitalists are no less dependent on the market to maintain themselves and their capital.

In non-capitalist societies, direct producers such as peasants typically possessed their means of subsistence and production (land, tools, etc.), so they were not dependent upon the market. The dominant class had therefore to be able to deploy superior power in order to appropriate the surplus labor of others by what Marx called “extra-economic” means — that is, coercive force of one kind or another: juridical, political, or military — as, for instance, when a feudal lord extracted labor services or rent from peasants.

Capitalist profits, by contrast, are not extracted directly from workers.

Capitalists pay workers in advance and must realize their gains by selling what workers produce. Profit depends on the difference between what the capitalist pays workers and what s/he derives from the sale of the products and services supplied by the workers. The fact that capitalists can make a profit only if they succeed in selling their goods and services on the market, and selling them for more than the costs of producing them, means that their making a profit is uncertain.

Capitalists must also compete successfully with other capitalists in the same market in order to secure a profit. Competition is, in fact, the driving force of capitalism — even if capitalists often do their best to avoid it, by means, for example, of monopolies.

But the social average of productivity that, in any given market, determines success in price competition is beyond the control of individual capitalists. They can’t command the prices at which their products will successfully sell and don’t even know in advance what conditions are necessary to guarantee a sale at all, let alone a profitable one.

The one thing capitalists can control to a significant extent is their costs. So, since their profits depend on a favorable price/cost ratio, they will do everything possible to cut their costs to ensure profit. This means, above all, cutting the costs of labor; and this requires constant improvements in labor productivity, to find the organizational and technical means of extracting as much surplus as possible from workers within a fixed period of time, at the lowest possible cost.

To keep this process going requires regular investment, the reinvestment of surpluses, and constant capital accumulation. This requirement is imposed on capitalists regardless of their own personal needs and wants, whether they are altruistic or greedy. Even the most modest and socially responsible capitalist is subject to these pressures and is compelled to accumulate by maximizing profit, just to stay in business. The need of capitalists to adopt “maximizing” strategies is a basic feature of the system.

So the whole capitalist system is operated by market imperatives, the compulsions of competition, profit-maximization, capital accumulation, and a relentless imperative to improve the productivity of labor so as to reduce costs in order to reduce prices.

Imagine that we have two workers, worker K and worker O, each with two young children.

Worker K is laid off when the company “downsizes.” K is nervous, but has some savings, is eligible for Unemployment Insurance benefits, Medicaid, food stamps (SNAP), and TANF, has access to free local day care, and lives in a Section 8 apartment, with their monthly rent tied to their income.

While K is not living as well as when working, if K were eligible for all of these programs, which would be highly unusual, K will be able to get by. K can pay the rent and buy food and remain insured and with some belt-tightening, will be okay for a while.

Worker O, by contrast, is fired, even though O didn’t do anything wrong. O is therefore ineligible for UI. O has no savings, cannot afford insurance, even with a subsidy through the Affordable Care Act, is not eligible for Medicaid or food stamps or TANF, has no reliable, affordable day care, and has no access to a housing subsidy. As a result, O is in trouble, and is desperate and perched on the edge of homelessness.

Now, let’s turn our attention to an employer with a job to fill, Z. This job is terrible. It’s minimum wage, has no health benefits, no paid days off or vacation time, has irregular hours -- some weeks you’ll need to work days, some weeks nights (and you won’t know in advance so you can plan), and you'll get 20 or maybe 30 hours each week, if you're lucky. There’s no opportunity for upward mobility, it’s a two-hour drive each way, with no reliable public transportation to get you there, and the working conditions are unsafe -- there have been lots of injuries there. As I said, it’s a terrible job.

Employer Z offers unemployed worker K the job. What’s K’s answer? It’s no, of course. Maybe even hell no. Does K say no because K is lazy? No. K says no because this is not a job that will help K raise a family and move up the ladder, and taking it would mean being unable to look for something better, among other things. It is rational under these circumstances, smart even, to turn down this job. If you can. And K can.

Now, Z offers O the job. What does O say? O says yes. Maybe even yes please. Why? Because O does not have any choice. O is desperate. O is in no position to bargain, or to wait for something better.

It may be even worse than this, because there might be a worker called V who is even more desperate than O. So, V says: “I know you can’t legally pay me less than minimum wage, but if you hire me instead of O, I’ll come in early and work for an hour before punching in, and then after I punch out at night I’ll stay for an extra hour then too.” When workers are desperate, they bid down their own wages.

If you are a worker, would you rather live in a country where most people were in K’s situation, or in O’s? K’s, of course, right? Because in that world, with very generous social welfare benefits, you would have some security, and some bargaining power.

If you are employer Z, would you prefer to live in a country where most people were in K’s situation, or in O’s? O’s of course, right? Because in that world, with very limited social welfare benefits, workers would have no choice but to accept whatever job you offered under whatever conditions; in a world with very generous social welfare programs, by contrast, everyone would have the ability to decline work, and if you want to hire someone, the burden would be on you, the employer, to make the job more attractive -- you might have to offer higher wages, paid vacation or sick days, a regular schedule, health insurance, and opportunities for promotion. Many of those would mean lower profits.

This is why business and their elected allies fight efforts to expand food stamps or unemployment insurance or TANF. A desperate worker is a cheap and compliant worker.

While a science must be rooted in material reality, mainstream economics ignores or distorts the most fundamental aspect of this reality: that the vast majority of people must, out of necessity, labor on behalf of others, transformed into nothing but a means to the end of maximum profits for their employers. The nature of the work we do and the conditions under which we do it profoundly shape our lives. And yet, both of these factors are peripheral to mainstream economics.

By sweeping labor under the rug, mainstream economists hide the nature of capitalism, making it appear to be a system based upon equal exchange rather than exploitation inside every workplace. Perelman describes this illusion as the “invisible handcuffs” of capitalism and traces its roots back to Adam Smith and his contemporaries and their disdain for working people. He argues that far from being a basically fair system of exchanges regulated by the “invisible hand” of the market, capitalism handcuffs working men and women (and children too) through the very labor process itself. Neoclassical economics attempts to rationalize these handcuffs and tells workers that they are responsible for their own conditions. What we need to do instead, Perelman suggests, is eliminate the handcuffs through collective actions and build a society that we direct ourselves.

“Workers, working conditions, and work itself rarely draw the attention, let alone concern, of employers or economists. Michael Perelman fills the void with this sweeping review of Procrusteanism—the economic institutions and practices that force people to accept the discipline of the market. His account of the degradation of labor gives us a sequel to Harry Braverman’s Labor and Monopoly Capital.”

—Richard B. Du Boff, professor emeritus of economics, Bryn Mawr College“When so much punditry around us is devoted to finding market-based solutions to our current woes, this book is a blast of fresh air, reminding us that the market is an increasingly destructive institution. Perelman shows how the market, instead of serving humanity, is now a Procrustean monster, demanding imperiously that humanity fit to its own constraints. The market gives power to the destructive practices of business and finance while stifling the creative potential of labor to address urgent social needs. Perelman subjects to withering criticism both the market and the economists who pray to this false god—a tonic read in these times of economic disarray!”

—Paul Adler, Chair in Business Policy, Department of Management & Organization, Marshall School of Business, USC

The Invisible Handcuffs of Capitalism (Monthly Review) The metaphor of a Procrustean Bed is a theme of the book and extremely apt: "In Greek mythology, Procrustes or "the stretcher [who hammers out the metal]", also known as Prokoptas or Damastes "subduer", was a rogue smith and bandit from Attica who physically attacked people by stretching them or cutting off their legs, so as to force them to fit the size of an iron bed. In general, when something is Procrustean, different lengths or sizes or properties are fitted to an arbitrary standard." Perelman's point is that in conventional economics, all aspects of life are contorted to fit the idea of markets, rather than economics changes to deal with actual human beings. Here's a terrific interview with him (mp3 audio).

This interview is especially good because the host, even though he agrees with the guest in the main, challenges him and argues the other side. By defending his position, we actually learn more. If only we had more of this.

[Marx and Engels] took the best thinkers, and they demonstrated how they were incomplete. They were not able to see what was driving, you know, inequality in the world. You know, Charles Dickens saw that there was inequality in the world, but what he didn't necessarily see was why this was so, why this reproduced itself. And that was Marx's project.

And that's really the reason why I find Marx even today to be a earth-shattering approach. You know, his approach is earth-shattering to understand the world, because it suggests that if you go through liberalism, you can understand its incompleteness. And then if you try to understand how the system is operating, you can have a much more complete, much more robust picture. You can understand, for instance, how the fact that small numbers of people arrogate to themselves the right to hold property, you know, and because they hold property, they're able to disenfranchise people and make people make judgments based on the fact that they have no property, so then I, having no property, have to come to you who have property and say, give me a job, and then you set the terms in which I'm employed.

You know, that is the root problem of how inequality is, you know, you know, constantly reproduced in our society, that those with property get to set the terms by which the rest of society live. And, you know, if you don't come to that, if you don't grasp that, which is the essence of Marxism, then you've not understood how we can constantly have discussions, every generation can have a discussion about what to do with poverty, you know, how to solve poverty. Can we raise enough money to solve poverty? Well, you can raise a lot of money, you can eradicate malaria, you can give to people, you know, a laptop computer, but they're still not able to set the terms themselves of how they should live. And that is the core lesson of Marxism. Unless people are able to set the terms in which they can live, they're not going to be free.

And a few odds-and-ends that didn't fit anywhere else. On the disingenuousness of "small state" people and their arguments:

My first major problem with small state people is that they are not prepared to look at these items on their merits. Instead they have a blanket ideological distaste for all things to do with government. ... My second major difficulty with many small state people, like George Osborne, is that they are using fear of a debt crisis (a possibility which for the UK and US is non-existent) to achieve their ends. This is political deceit on a grand scale. My third major problem follows from the second: reducing government spending during a liquidity trap recession does real harm. It wastes resources on a huge scale. ...

Which brings me to a final problem I have with small state people, which is their disregard for the evidence. It is true that most people are bad at acknowledging counter evidence, but those with an ideological conviction are worse than most. ...

And in the subject of "free" trade - Bill Greider on Why Paul Krugman Was So Wrong (Naked Capitalism) A good point in the first paragraph - "Greider, who has long stressed that our system is not open trade but
managed trade, and that other countries manage it with much more
attention to protecting their workers than we do..."

1 comment:

The following from FlipChartFairy Tales ties in nicely with your general theme and, I think it also adds information:https://flipchartfairytales.wordpress.com/2014/12/16/the-legend-of-the-free-labour-market/Enjoy reading the fruits of all your reading (how do you find the time to do anything else - are you glued to the screen?), and have to agree with most of your conclusions, depressing as it may be.J